Gas Tax Hike Wins Surprising Victory

The General Assembly is poised to do something it hasn’t done since 1992 — raise the tax on gasoline. Looked at another way, the legislature is simply doing what it has done repeatedly during the past five years — increase another of the state’s major taxes and revenue sources.

One of the arguments used in its favor was that Maryland needed to be competitive with Virginia, which just raised taxes to fund transportation.

Staying competitive with Virginia is an argument that has been dismissed in passing previous increases in the personal income tax, the sales tax, the corporate income tax, the alcohol tax and the tobacco tax. All of these are now higher than they are in Virginia, and opponents of those tax hikes said they made Maryland less competitive with its neighbor to the south.

The success of the gas tax hike last month was certainly a surprise to many people, particularly this writer, whose February column analyzed why it was not likely to happen. “A tax-weary legislature has no stomach to raise needed transportation revenues,” said its lead sentence.

Wrong.

What Happened?

Action by Virginia’s conservative governor and tax-adverse legislature provided at least rhetorical cover, if not a real justification, for Maryland to raise its own taxes.

After changes by the legislature, Virginia replaced its 17.5–cents-per-gallon tax with a 3.5% wholesale sales tax. It increased the statewide sales tax to 5.3% and raised it to 6% in Northern Virginia to support mass transit. It also dedicated a long-desired Internet sales tax to transportation needs, in hopes that Congress will finally allow the states to tax all the purchases on Amazon and other online vendors, regardless of whether they have a physical presence in a state.

Gov. Martin O’Malley has tried to pass variations of a gas tax twice before. His proposal this year borrowed some elements of the Virginia plan. As modified by the House of Delegates, the Maryland plan puts a sales tax on gasoline of up to 3% on top of the existing 23.5–cent-per-gallon tax, and indexes this tax to inflation. It also hopes to get money from the Internet sales tax, and increases the gasoline sales tax if Congress does not act.

The Virginia plan raises about $800 million a year. The Maryland plan, to be phased in over three years, raises about $600 million in a state that is about 30% smaller. The size of the increase is roughly similar, but gas will still cost 15 cents per gallon less in Virginia, and only in Northern Virginia and the Hampton Roads area will that state’s sales tax be as high as Maryland’s.

Trading Votes

Other factors in play were funding for a hospital in Prince George’s County and for new schools in Baltimore City. What do these have to with transportation funding?

These were the carrots that were used to help persuade the large, all-Democrat delegations from those counties to go along with the plan. The liberal Montgomery County delegation representing the state’s largest county is almost always willing to vote for a tax hike, and this one will likely help build transit lines there. Of the 62 delegates from those three jurisdictions, only four voted against the tax increase, which put Democratic leaders just 13 votes away from the 71 votes needed for passage.

Howard County Del. Frank Turner, who this year became vice-chair of the House Ways & Means Committee, was the floor leader for the bill, and argued that the state’s roads, and particularly its bridges, needed funding.

He was joined in his support of the bill by three of Howard County’s six Democrats. Like all Republican legislators, Howard County’s voted against the tax, as did several Anne Arundel Democrats.

Moving Fast

The legislation moved exceptionally fast for legislation so controversial and introduced so late. In less than a week, it had a hearing, was voted out of committee and passed the full house — but only after triggering one of the most dramatic protests of the session from Republicans.

After several hours of debate, Speaker Michael Busch quickly ordered a tally as some Republicans stood to explain their “no” votes. House rules do not require Busch to call on every delegate who wishes to explain a vote, but it is customary.

After failing to persuade Busch to take another vote, the Republicans walked off the floor for several minutes.

It was largely these Republicans who presented all the arguments against the gas tax legislation. For one, it does little to prevent the new money from being funneled to other needs. The so-called “lockbox” provision requires only a three-fifths vote in a standing committee of each house, and even that requirement can be changed in statute; this hurdle is far easier to jump than other proposals for constitutional amendments that would require super majorities of both the House and the Senate to raid the transportation fund.

County governments get nothing out of this bill to help their highway projects, which have already suffered from cuts in their Highway User Revenues in past years. The same goes for municipalities such as Laurel and Annapolis. While the funds that have been shifted from the Transportation Trust Fund have been repaid, $1.1 billion in Highway User Revenues intended for county and municipal roads have been shifted to the general fund for other programs since 2004 and have not been repaid.

The O’Malley administration has chosen to classify the highway user money that had gone to county and municipal governments as local aid which it instead chose to redirect to local school systems.

However, this “local aid” for roads has been in place for 65 years, long before the massive increase in education aid during the last decade.

Voted Down

Business groups are divided over the gas tax hike. The Maryland Chamber of Commerce, the Greater Baltimore Committee and the Greater Washington Board of Trade have all testified for increased transportation funding, and have been willing to accept whatever the legislature can pass.

The members of business groups such as the Restaurant Association of Maryland, the National Federation of Independent Business and the Maryland Retailers Association tend to include many smaller businesses and are not generally in favor of any kind of tax hike, regardless of purpose.

But all the groups, small or large, were opposed to efforts to increase Maryland’s minimum wage from $7.25 to $10 an hour. There was also a proposal to require any employer, no matter its size, to offer paid sick leave, granting one hour of paid leave for every 15 hours worked.

Supporters of a minimum wage hike, including a coalition of progressive, labor and religious groups, argued that it would help the economy by putting more money in the hands of low-wage people who would spend it right away. Business owners said the requirement would actually force them to hire fewer people, since it would increase expenses without increasing revenues.

That was hardly a great idea during the super-slow economic recovery we’ve been experiencing. A Senate committee agreed, killing both proposals this year, as it had done in the past for the minimum wage.